Is Sega Dead?

It’s clear to anyone paying attention that Sega has been on a general downhill slide for the past two decades. Once a titanic presence in the video game industry, one that held its own against Nintendo and every other competitor between the mid-’80s and mid-’90s, Sega has gradually lost much of what made it special.

The reason, according to former Sega CEO Tom Kalinske in an interview with Game Industry, is that the company has “made the wrong decisions for 20 years.”

Which begs the question: Is Sega doomed, or can it bounce back?

To answer that, we’ll need to look at the problems, which began in the mid-’90s, right around the time Kalinske left the company. Prior to that, Sega was a force to be reckoned with in the video game industry. Its Genesis console was home to numerous classic games, including many made by Sega itself, like the Sonic the Hedgehog and Phantasy Star series. Nintendo and Sega were fairly evenly matched, with the Genesis selling a respectable 40 million units during its lifetime, compared to the Super Nintendo’s 49 million.

The bad decisions, Kalinske says, began when the company’s board rejected his plan to cooperate with Sony to build a new console after the Genesis. According to the plan laid out by executives from both companies, Sony and Sega would share the costs, initial losses, and eventually the profits of the hardware.

“Of course, in those days, we were much better at software than they were, so I saw this as a huge win,” Kalinske said. But when he and other Sega executives presented the plan, “the board turned it down, which I thought was the stupidest decision ever made in the history of business. And from that moment on, I didn’t feel they were capable of making the correct decisions in Japan any longer.”

Source: Sega

What might have become of a console co-created by Sega and Sony will never be known, but we do know that Sony went on to release the original PlayStation in 1994. The PlayStation would go on to become one of the most successful systems in history, selling 102 million units. That same year, Sega released the Saturn, which sold only 10 million units in its lifetime. Then, in 1999, Sega released the Dreamcast, which also sold a meager 10 million units, at which point Sega could no longer afford to compete in the console space.

In 2001 Sega became a software-only company, which it how it has operated ever since. Over that time, Sega has had its share of fine games, but it has also had a number of clunkers and has killed much of the goodwill for some of its biggest franchises.

The latest bleak news for Sega came in January, when the company announced it planned to close its San Francisco office, cutting at least 120 jobs and focusing on the “growth area” of digital games on PC and mobile.

How much interest Sega still has in making games for consoles remains to be seen, but its recent efforts have not been overwhelming successes. The company announced recently that Alien: Isolation sold about 1 million copies in its first three months on the market. That’s not terrible, but it’s probably less than Sega would have hoped for such a high-profile game based on a popular IP. Its latest two Sonic games for Wii U and Nintendo 3DS didn’t even manage to sell half a million units between them.

Source: Sega

The route Sega seems to be taking with its focus on digital games might be an even trickier one, although one it has had some success in of late. Sega has released a series of free-to-play games on mobile, including Sonic Dash, Sonic Jump Fever, Crazy Taxi City Rush, and Sonic & All-Stars Racing Transformed. These games have done well for the company, but the free-to-play market is relatively new, and has proven difficult to navigate for companies like Zynga.

Still, it seems as good a solution as any. Sega has been selling mobile games for years, so it’s a market the company knows well. If this is the best future Sega can make for itself, then that’s what it has to do to survive. Longtime fans might wish it would make more console games, but that’s not a plan that has worked out in the past.

“You have to really make a lot of mistakes to kill a strong brand,” Kalinske said. “I do think some great brands obviously have been destroyed, Atari being one of them. Why didn’t that survive? I think there’s a lot of bad decision making involved in killing brands like that. I hope Sega isn’t the same thing.”